t.

'

111

SOM PRAKASH REKHI A

v.

UNION OF INDIA & ANR.

November 13, 1980

[V. R. KRISHNA IYER, R. S. PATHAK AND 0. Cl!INNAPPA REDDY, JJ.] B

Constitution of India-Burm.ah Shell (Acquisition of Und.ertakings· in India)

Act, 1976-Cpmpany acquired by the Government and vested in a statutory

corporation-Corporation

if State-Test for determining whether

a body is State

within the 1n(!a11fng of article 12.

Und~r a voluntary retirement scheme in force iri the company the petitioner,

a clerk Ill Burmah Shell Oil Storage Ltd., retired voluntarily after qualifying for

pension. The pension payable to

him

was regulated by the terms of a tmst deed

of 1950 under which a pension fund was set up and regulations were made for

its administration. The petitioner was also covered by a scheme under the

Employees Provident Fund and Miscellaneous Provisions Act, 1952 and to

gratuity under the Payment

of Gratuity Act, 1972.

The annual pension to which he

was entitled under the trnst deed, without

making !he authorised deductions as provided under regulation 16 of the trnst

deed, worked out t6 a sum of Rs. 165.99 per mensem. He was also paid

supplementary retirement benefit of Rs. 1!6 /-per month for a period o£ 13 months

after

his retirement which

was stopped thereafter.

The employer informed the petitioner that from out of his pension of

Rs. 165.99 two deductions were made, one of which was on account of employees

provident fund payment made to the pensioner and the other on account of

payment of gratuity with the result the pension payable to him was shown as

Rs. 40.05. The company also cut off the monthly payment of Rs. 86/-Mlich

was paid as supplementary retirement benefit on the score that it was ex gratia,

discretionary and liable to be stopped at any time by the employer.

In the meantime

the company was statutorily taken over by force of the

Burmah

Shell (Acquisition of Undertakings in India) Act, 19"/6. Thereafter

he Central Go~ernment took steps to vest the undertaking in the second

respondent, the Bharat Petroleum, which then became the statutory successor of

the petitioner's employer. His pensionary rights such as he had, therefore,

became claimable from the second respondent.

A ?reliminary objection was raised on behalf of the COfPoration that no writ

~ould lie against the second respondent since it is neither a government depart­

ment nor a statutory corporation but just a company._

HELD : By the Court :

The petitioner

is entitled to the payment of full pension.

c

D

E

F

G

(per majority Krishna Iyer and Chinnappa Reddy, JJ Pathak, J dissenting). H

I. The Bharat Petroleum is State within the meaning of Article 12 of the

Constitution and a writ

will lie against it under Article 32. [128A]

-----.

A

B

c

D

E

F

G

H

112 SUPREME COURT REPORTS [1981] 2 S.C.R.

(a) The settkd position in law is that any authority under the control of

Government of India comes within the definition of State. On the appointed

day the right title and interest in Burmah Shell did vest in the Central Government

and by virtue of section 3 the Central Government was the transferee

of the und~rtaking. While the formal ownership was cast in the corporate mould, the

reality reaches do\vn to State control. The core fact is that the Central Govern­

ment, through section 7 chose to make over its own property to its own offspring.

Therefore, the Burmah Shell though a government company is but the alter ego

of the Central Government and must, therefore, be treated as definitionally caught

in the net of State since a juristic veil worn for certain legal purposes cannot

obliterate the true character of

the entity for purposes of constitutional law.

[121A;

G; 124 D-E]

(b) Corporate

personality is a reality and not an iJlusion or fictitious cons­

truction of the law.

It is a legal person. Mer'ely because a company or other legal

person has functional and jural individuality for certain purposes and in certain

areas of law, it does not necessarily follow that for the effective enforcement

of fundamental rights under the constitutional scheme, the Court should not

scan the real character of that entity.

In the instant case section 7

gives a

statutory recognition and

a status above a mere government company. If the

entity

is no more than a company under the Company I.aw or society under

the law relating to registered societies

or cooperative societies one cannot call

it an authority. [124F; !25B,

E]

(c) An authority in administrative law is a body having jurisdiction in certain

matters of a public nature. Therefore, the ability conferred upon a person by

the law to alter, by his own will directed to that

end, the rights, duties, liabilities

or other legal relations, either of himself or of other persons must

be present

ab extra to make a person an

"authority". When the person is an 'agent or

instrument of the functions of the State' the power is public. [125F-H]

SGmetimes the test is formulated, by asking whether the corporation i:!

formed by a statute or under a statute. The true test is not how legal person

is born but why it is created. Apart from discharging functions or doing

business

as the proxy of

the State there must be an element of ability to affect

legal relations by virtne of power vested in it by law. [126A-B]

(d) In the instant case sections 3 and 7 clothe the company with State

functions. Section 7 contemplates that the company should step· into the shoes f­

of the executive power of the State. The legislative history of the corporation

shows that

it is more than a mere company registered under the Companies Act.

Matters like conditions of service of employees, adjudication of disputes relat ..

ing to employees, superannuation and welfare funds and so on are regulated

statutorily unlike

in the case of ordinary companies. Sections 9 and 10

create

rights and duties vis a vis the government company itself apart from the

Companies Act. Section 11 specifically gives the Act primacy vis a vis other

laws. Section 12 clothes the Government company with power to take delivery

of the property of Burmah SheJl from every person in whose possession,

custody

or control such property may be. Whatever its character antecedent

to the Act all the relevant provisions have transformed

· it_ into an instrumen ..

tality of the Central Government with a strong indicia of power to make it ab.

11

authority". It is a limb of the Govefuritent, an agency of the State, a

vicarious creature of statute. [126C-H,

127B-C]

.I

SOM PRAKASH REKlil v. UNION 113

2. Some of the tests laid down by this Court for deciding whether a A

body is State within the m,.ning of Article 12 are :

(i) If the entire share capital of the corporation is held by Government,

it would go a long way towards indicating that the corporation is an instru·

mentality or agency of the Government;

(ii) A finding of State financial support plus an unusual degree of control

over the management and policies might lead, one to characterise an opera· B

tion as State action.

(iii) The existence of deep and pervasive State control may afford an

indication that the Corporation is a State agency or instrumentality.

(iv) Whether

the corporation enjoys monopoly status which is

State con ..

X ferred or State protected is a relevant factor.

( v) If the functions of the corporation are important public ~ctions

and related to governmental functions it would be a relevant factor in clrutsi·

tying the corporation as instrumentality or agency of the Government.

c

(vi) If a department of Government is transferred to a corporatioil:, it

would be a strong factor supportive of the inference that it is an instrumen·

tality of the State. [137E-H]

D

(vii) Where the chemistry of the corporate body answers the test of

State it comes within the definition of Article 12. [136Dl

(viii) Whether the legal person is a corporation created by a statute, as

distinguished from under a statute is not an fuiportant criterion although. it

may be an indicium. [144H]

Airport Authority [1979] 3 S.C.C. 489, UP Warehousing Corporation

case (Managing Dir{!ctor, UJ>. W.arehousing Corpn. v. V. N. Vaipayee)

[1980] 3 S.C.C. 459 & Sukhdev Singh v. Bhagatram [1975] 3 S.C.R. 619

referred to.

Rajasthan Electricity Board v. Mohan Lal [1967] 3 S.C.R. 377, Sukhdev v.

Bhagatram [1975] 3 S.C.R. 619, Praga Tool Corporation v. C. A. Immanuel

[1969] 3 S.C.R. 773; Heavy Engineering Mazdoor Union v. State of Bihar

[1969] 3 S.C.R. 995, S. L. Aggarwal v. General Manager, Hindustan Steel

Ltd. [1970] 3 S.C.R. 363 & Sabhajit Tewari v. Union of India [1975] 3 S.C.R.

616 distinguished.

3(a) Having regard to the directive in Article 38 and the amplitude.of

the other articles in part IV Government may appropriately embark npon

almost

any activity which in a non-socialist republic may fall within

ihe

private sector. Any person's employment, entertainment, travel, rest and

leisure, hospital facility and funeral service may be controlled by the State

and if all these enterprises are executed through government companies,

bureaus, societies, councils, institutes and homes, the citizen may forfeit his

fundamental freedoms

vis a

_vis these strange beings which are government

in fact but corporate in form. If only fundamental rights were forbidden

access to corporations, companies, bureaus, institutes, councils a~ kindred

bodies which act as agencies of the administration there may be a break­

down of the nile of law and the constitutional order in a large sector of

governmental activity carried on under the guise of 'jural persons'. It may

--.._....

E

G

II

A

B

c

D

E

F

G

B

114

SUPREME COURT REPORTS (1981] 2 S.C.R,

pave the way for a new tyranny by arbitrary administrators operated from

behind by Government but unaccountable to part Ill of the Constitution.

The Court caunot assent

to an interpretation which leads to such a disastrous

conclusion unless the language of Article

12 offers no other alternative.

[147C-F]

(b) It is dangerous to exonerate corporations from the need to have

constitutional conscience; and so that interpretation, language permitting,

which makes governmental agencies, whatev'er their mein, an1enable to

constitutional !imitations must

be adopted by the court as against the alterna­

tive

of permitting them to :flourish as an imperium in imperio. [148A-B}

(c) The common-sense signification of the expression

"other authorities

under the control of the Government of India" is plain and there is no

reason to make exclusions on sophisticated grounds such as that the legal person

must be a statutory corporation, must have power to make laws, must be

created

by and not under

a statute and so on. [148C]

4(a) It is clear from section II} which relates to the provident fund,

pension, welfare fund and the like that the second respondent has made

provision for the

1ights and interests of the beneficiaries of the trust

establish·

ed by Burmah Shell tfor the benefit of persons employed by it. Sub-section

(1) puts this matter beyond doubt. This obligation of the second respon­

dent

is a statutory one and having regard to the provisions of section

11, it

cannot be affected by any instrument or decree or order. The stautory

continuation

of a pre-existing liability

tO pay pension, provident fund or

gratuity, cannot ~ avoided having regard to section 10. [1500-E]

(b) Assuming that regulation 16 authorities deduction and that discre­

tionary payments, although enjoyed by the employees are liable to be stopped

section 12

of the Provident Fund Act forbids any such reduction or

deduc­

tion out of the benefits in the nature of old age pension on the score of the

payment

of contribution to the provident fund. The benignant provision

con~

tained in section 12 must receive a benignant construction and even if l~·o

interpretations are permissible, that which furthers the beneficial object should

be preferred. From that perspective the inference

is reasonable that the

total quantum

of benefits in the riature of old age pension, gratuity or

provi·

dent fUnd, shall not be reduced by reason only of the liability of the employer

for payment

of contribution to the fund. The section prevails over the

trust deed. The provident

fund accrues by statutory force and section 12

overrides any agreement authorising deductions. The expression 'instrument'

contained

in section

15 covers a trust deed and notwithstanding the deduction

that may

be sanctioned by the trust deed, the overriding effect of section 14

preserves the pension and immunises it against any deduction attributable to

the statutory payment

of the provident fund. The deduction made by the

second respondent

is in that event

illeglll. [151A-H]

(c)

If regulation 16 is a provision which imposes a cut in certain

even­

tualities it is possible to hold that the employee has a certain pensionary

right. But

if he draws provident fund or

gratuity that pension will be pared

dowo by a separate rule

of deduction from the pension. It follows that

there

is no straining of the language of the regulations to meao, firstly, a

right

to pension

quantified ip: certain: manner and, secondly, a right in the

Management to make deduction from

out of that pension if other

retiral

benefits are drawo by the employee, That appears to be the pension scheme.

SOM PRAKASH REKH! V. UNION

115

If this be correct, there is 110 substance in the argument that t11e pension i1seJt

is automatically reduced into a smaller scale of pension on the drawal of

provjdent fund or gratuity. Pension is one thing, deduction is another. The

latter is independent of pension and operates on the pension to amputate it,

as it were. If a law forbids such cut or amputation the pension remains intact.

[152B-D]

(d) The payment of gratuity or provident fund should not occasion any

deduction from the pension as a "set~off''. Otherwise, the solemn statutory

provisions

ensuring provident fund and gratuity become illusory.

Pensions

are paid out of regard for past meritorious services. The root of gratuity

and the foundation of provident fund are different. Each one is a salutaiy

benefaction statutorily guaranteed independently of the other. Even assuming

y , that by private treaty parties had otherwise agreed to deductions b<fore the

coming into force. of these b'eneficial enactments they cannot now be depri·

vatory. It is precisely to guard against such mischief that the non-obstante· and

overriding provisions are engrafted on these statutes. [152F-G]

(e) It is not open to the second respondent to deduct from the full

pension any sum based upon regulation

16 read with regulation 13. If

regu­

lation 16 which now has acquired statutory flavour, having been adapted and con~

tinned by statutory rules, operates contrary to the provisions of the P.F. Act

and the Gratuity Act, it must fail as invalid. [153CJ

(f) What is discretionary depends on the discretion of the employer. But

that power when exercised by an agency of government like the second res­

pondent, must be based upon good faith and due care. If as a measure of

reprisal or provoked by the drawal of gratuity, or by resort to legal authorities, ·

such supplementary benefit is struck off, it will cease to be bona fide or valid.

[153D-EJ

Pathak, J. (dissenting)

On the merits the petitioner should be granted relief as proposed by the

mbjority. [154 G]

It is difficult to accept the proposition that the Bharat Petroleum Corpora.

lion Limited is a "State" within the meaning of Article 12 of the Constitu-

tion, but the matter appears to be concluded because of the direction taken

by the law since Ramana Dayaram Shetty v. International Airport Authority

[1979] 3 s.C.R. 489 a wider range of debate on the fundamental principles

involved in the issue would have been welcomed in

view of the implications

fl.owing from

the definition of a "government company" in the Companies

Act, 1956. [154 D]

A

B

c

D

E

F

The provisions of the Burmah

Shell (Acquisition of Undertakings in

India) Ac~ 1976 do not alter the basic nature of a "government company". G

They are provisions which could well have been applied to a private corpo­

ration if the Act had selected one for vesting the undertaking in it. Had that

been done, they would not have made the private corporation a State. [154F]

ORIGINAL JURISDICTION : Writ Petition No. 1212 of 1977.

(Under Article 32 of the Constitntion).

Petitioner in Person. H

S. Markendeya and Miss A. Subhashini for Respmdent No. 1.

G. B. Pai, 0. C. Mathur and K. l. John for Respondent No. 2.

116 SUPREME COURT REPORTS [1981] 2 S.C.R,

A P. R. Mridul, M. K. Ramamurthi and Jitendra Sharma for the

B

c

D

E

F

Intervener (The Petroleum Workers' Union)

P. N. Tiwari (Secretary of Union) for the Intervener (Petroleum

Employees' Union).

B. B. Sawhney and B. P. Ghosh for the Intervener (C. H. Kewal­

ramani).

The Judgmeut of

V. R. Krishna Iyer arid

O. C. Reddy, JJ. was

delivered by Krishna Iyer,

J. Pathak, J.

gave a dissenting Opinion.

KRISHNA IYER, J.-Three seminal issues arise in this little Ii~ har-""-­

bouring larger principles. We may state them, each with a quotel to

drive home the social stakes, and ihen proceed to the pedestrian

factual-legal narrative and discussion.

"They (corporations) cannot commit treason, nor be out­

lawed, nor excommunicated, for they have no souls."

(Edward Coke, Sutton's Hospital Case)

A legal power, which projects

an awesome portent has been

sprung upon the

court by the defending respondent-. The Bharat

Petroleum Corporation Ltd(') (the Corporation, for short)-as to

whether a writ

will issue under Art. 32 of the Constitution against a

government company, belonging, as it does, to an increasing tribe of

soulless ubiquity and claiming, as it does, to constitutional immu­

nity. This

is the first issue to which he will address ourselves.

Jawaharlal Nehru warned the Constituent Assembly about the

problem of poverty and social change :

The service of India means the service of the millions

who suffer.

It means the ending of poverty and ignorance

and disease and inequality of opportunity. The ambition

of the greatest man of our generation has been to wipe

every tear from every

eye. That may be beyond us, but

G as

long as there are tears and sufferings, so long our work will

not be over.

The second question which claims our attention turns

ori the peti­

tioner's plea of alleged stultification of Art.

41 by the State

itself re­

incarnating

as a government company, by defending the paring down H the pension of the petitioner to a pathetic pittance thus sterilising a

directive principle

to a decorative paper.

(I) Vide Certificate of Incorporation dated 1-8-1977.

SOM PRAKASH REKH! v. UNION (Krishna lyer, J.) 117

Law cannot stand aside from the social changes around A

it.

(Justice Brennan in Roth v. United States

354 U.S. 476)

The third problem, not humdrum but heuristic, turns on the

construction of the relevant legislations and regulations covered by

the writ petition, remembering the social

dynamics

of the law of

statutory interpretation. '

This writ petition under

Art. 32 relates to a poor employee's small

pension on retirement and the legality

of the deductions effected by

the. employer which

make the net sum payable traumatically trivial

(Rs.

40/-). A principle of wider application is involved beyond the

individual's pensionary

fate.

The petitioner was employed as a clerk in the Burmah

Shell Oil

Storage Ltd., (Burmah Shell, for short) and retired betimes (at 50)

after qualifying for a pension, on April 1, 1973. He was also

covered by a scheme under the Employees Provident Funds arid

Family Pension Fund Act, 1952 (for short, the PF Act). The em­

ployer undertaking

was statutorily taken over

by force of The Bur­

mah

Shell (Acquisition of

Undertakings in India) Act, 1976 (here­

inafter called the Act). Thereafter, the Central Government, act­

ing under the statute, took necessary steps for the vesting of the

Undertaking in the second respondent, the Corporation and became

the statutory successor

of the petitioner's employer. His pensionary

rights, such as he had, therefore, became claimable

from the

second respondent. What

was the quantum? Was any cut illegally

effected by Burmah

Shell and continued by respondei;tt 2 ? Could a:

writ be issued against the second respondent in respect of the cut ?

These are the questions argued before

us. The petitioner-pensioner, ~eing too poor, Shri Parekh, assigned by the Legal Aid Society,

appeared promptly and argued passionately. At a re-hearing, the

petitioner preferred to make a

few brief supplementary submissions on

his own.

The pensionary provision for the Burmah

Shell employees de­

pended

on the terms of a Trust Deed of

1950 under which a Pension

Fund

was set up and regulations were made for its administration.

Regulations

13 and

.15 entitled the petitioner to pension and contain-

B

c

D

E

F

G

ed the formula for quantification. Regulation

13 has a

significant H

clause : "less the authorised deductions specified in reg. 16, namely

...... ". The bone of contention between the parties is about these

.......-------·~--

118 SUPREME COURT REPORTS [1981] 2 S.C.R.

A deductions and we may set out this Regulation (relevant part) even

here:

B

c

16. The authorised deductions to be made in calculating

the amount of a non-contributing member's pension shall

be as follows :

(

1) A sum equal to four per cent of such amount stand­

ing to the credit

of the member at the relevant date in any

Provident Fund

as represents any Company's contributions

to that fund in respect of the period of the member's Accre­

dited Service (including bonuses and interest on such cont,ri-

butions up

to that date).

(2) A sum equal to four per cent of any amount which

before the relevant date the member has withdrawn from

a Provident Fund in

so far as such withdrawal is under the

Rnles

of the Provident Fund charged against the period of

the member's Accredited Service (including bonuses and

D interest thereon) or has been paid out to him during his

Accredited Service under the

Rules of Provident Fund, to­

gether with interest thereon from the date of such withdrawal

or receipt to the relevant date.

(3)

If the

Company so elects, a sum not exceeding six

E per cent

of the amount of any payments which any

company

has made or may make or which any company shall be or

have been required by law to make to the member in con­

nection with the termination

of his service with that company

together with interest thereon from the date

of payments

down to the relevant date.

F

The Pension Fund, on the vesting of Burmah Shell in Respon- ,

dent 2, came to be administered by the latter under the Burmah }--

Shell (Acquisition of Undertakings in India) (Admjnistration of

Fund) Rules, 1976. The Rules provided for the Government com-

pany,

viz. Respondent 2 acting in accordance with the provisions of

G the rules and regulations applicable

to or of any law governing the

respective Provident Fund, Welfare Fund or other fund and in force

immediately before the 24th day of January, 1976.

If

any legal provision overrode the regulation authorising deduc­

tions the:2nd respondent could and should acf according to the legisla­

H tion. Thus, the statutory rules for administering pensionary matters

direct Respondent 2 to conform to 'any law' governing providen~ fund

and like items. And

if, as is contended before us by the petitioner,

SOM PRAKASH REKH! v. UNION (Krish11a Iyer, J.)) 119

such law exists, the regulation based deduction ceases to be aJJI A

'authorised deduction'.

By virtue of reg. 13, the petitioner

was entitled to a pension

o~

Rs. 165.99 subject to certain deductions which form the controversy

in this case.

He was also being paid Supplementary

Retirement1Bene-

fit of Rs. 86/-per month for a period of 13 months after his retire-B

ment which

was stopped thereafter. This stoppage is also

assailed

before us.

By letter dated September 25, 1974, the employer (Bunnah Shell)

explained that from out of the pension of Rs. 165.99 two;deduction~

were authorised by reg. 16. One such deduction was based on: reg,

16 ( 1) because of Employees Provident. Fund payment to th~ pensioner

and the other rested on reg. 16(3) on account of payment of gratuity.

Resultantly, the 'pension payable' was shown as Rs. 40.05. '

The case becomes clear if one more fact is mentioned. The peti­

tioner claimed and received his Provident Fund amount under the PF

Act and recovered a gratuity amount due under the Payment of

·Gratuity Act, 1972 (for short, the Gratuity Act). It is necessary to

mention that Bunnah Shell was refused exemption, under s. 5, from

the operation of this Act (

vide Annexure F to

the Writ Petition). In:

short, two sums, one under the PF Act and the other under the Gratuity

Act, were drawn by the pensioner. Consequent on this,

Bunnah

Shell

made 2 deductions from the petitioner's pension, taking its stand oJJi

reg. 16 read with reg. 13 already referred to. Indeed, the company

went even beyond this, in its letter of May 8, 197 4,

by cutting

off the

monthly payment of Rs.

86/-paid as Supplementary Retirement

Benefit on the score that

it was ex gratia, discretionary and liable to

be stopped any time by the employer.

The petitioner

was intimated by the Burmah Shell that ctYnsequent

on his drawal of provident fund and gratuity benefits, the quantum of

his pension would suffer a pro tanto shrinkage, leaving a monthly puny

pension of Rs. 40/-. Since no superannuated soul can survive, inl

Indian indigence and inflationary spiral, on ·Rs. 40/-per month, thei

petitioner has come to this court challenging the deductions from his

original pension as illegal and inhuman and demanding restdration of

the full sum which he was originally drawing. His right to property

under Art. 19 has . been violated, he claims.

c

D

E

F

G

It may well be, as urged by the Corporation, that if reg. 16 does

govern, the deductions,

are warranted. Likewise, if the Supplementary H

Retiral Benefit is purely

a mercy gesture, savouring of no manner ofl

right nor subject to restrictions on discretionary exercise, the Sudden

A

B

c

D

E

F

120 SUPREME COURT REPORTS (1981] 2 S.C.R.

stoppage of that sum perhaps not illegal. It may bd heartless, but

not necessarily lawless, for a prosperous undertaking,

now in the

public sector, which pays over-generous salaries to higher officials and

liberal scales even to its lesser employees, to destroy the pensionary

survival of an erstwhile employee who had served 28 long and fruitful

years of his limited span of

life for the profit of his employer.

•

Justice according to law being the rule, let us examine the validity

of the rival contentions. The employer relies on reg. 16 and the pen­

sioner rests his claim on its invalidity. The mantle of 'Burmah Shell'

has statutorily fallen on 'Bharat Petroleum'(') and it cannot be con­

troverted that if reg. 16, read with reg. 13, be valid the second respon­

dent can insist on its 'pound of flesh' and claim lawfully that the deduc­

tions made are 'authorised' and the discretion to stop supplementary

pension is charity which can

be choked off at pleasure or anger.

A preliminary objection has been raised by

Shri G. B. Pai that no

writ will lie against the second respondent since it

is neither a govern­

ment department nor a statutory corporation but just a company and so

the court should reject out of hand this proceeding under Art. 32. We

do see the force of this contention, notwithstanding the observations in

the Airport Authority Case(

2

), that the status

of 'State' will attach to

the govermnent companies like the second respondent.

Let us first look at

t11e facts emerging from the Act and then

superimpose the law in Art.

12 which conceptualises

'State' for the.

purposes of Part Ill. After all, cynicism apart, Mark Twain is good

chewing

gum for lawyers : (

3

)

Get your

facts first, and then you can distort them as

much

as you please.

It is common ground that the present writ petition, invoking Art. 32,

is limited to issuing directions or orders or writs for the enforcement

~

of fundamental rights and the question is whether the addressee. is the

'State' within the meaning of Art. 12 of the Constitution. We will

examine this position more closely a little later, but granting that Art.

G 19 is aimed at State action the contours of 'State', conceptually speak­

ing, are largely confined to Art. 12. We have to study the anatCJ!llly

of the Corporation in the setting of the Act and decide whether it comes

within the scope of that Article. We have only an inclusive definition,

not a conclusive definition. One thing is clear. Any authority under

H

(I) vide Certificate of Incorporation dated 1-8-1977.

(2) Romana Dayaram Shetty v. International Airport Authority of India and Ors

[1979] 3 s.c.c. 489.

(3) Mark Twain : Quoted by Rudyard Kipling, from Sea to Sec.

I•

\'

,

...

-

..-

SOM PRAKASH REKHI v. UNION (Krishna Iyer,/.)( 121

the collfrol of the Government of India comes within the definition.

Before expanding on this theme, we may scan the statutory scheme, thei

purpose of the legislative project and the nature of the juristic instru·

ment it has created for fulfilment of that purpose. Where constitu•

tional fundamentals, vital to the survival of human rights, are at stake

functional realism,

not facial cosmetics, must be the diagnostic tool.

Law, constitutional law, seeks the substance, not merely the form.

For, one may look like the innocent flower but

be

tho serpent under it.

The preamble, which ordinarily illumines the object of the statute,

makes it plain that what

is' intended and achieved is nationalisation of

an undertaking of strategic importance :

AND

WHEREAS it is expedient in the public interest

that the undertakings in India, of Burmah Shell Oil Storage

and Distributing Company of India Limited, should be

acquired

in order to ensure that the ownership and control

of the petroleum products distributed and marketed in India

by the said company are vested

in the State and thereby so

distributed as best to subserve the common good;

It is true tl1at what is nationalised is a private enterprise motivated,

undoubtedly, by the need

for transferring the ownership and control of

the company and its petroleum products distributed and marketed in

India.

Section 3 is important from this angle :

3. On the appointed day, the right, title and interest of

Burmah Shell, in relation to its undertakings in India, shall

stand transferred to, and shall vest in the Central Govern­

ment.

A

B

c

D

E

This provision lays bare the central object of making the F

Central Government the proprietor of the undertaking. It hardly

i needs argument to convince a court that by virtue of s. 3, the Central

'\Government is the transferee of the Undertaking. Had a writ pro­

ceeding been commenced during the period of vesting in the Central

Government, it could

not have been resisted on

the score . that the

employer is not "the State". The appointed day did arrive and the G

right, title and interest in Burmah Shell did vest in the Central Govern­

ment.

A commercial undertaking although permitted to be run under our

constitutional scheme by Government, may be better managed with

professional skills and on business principles, guided, of course, by H

social goals, if it were administered with commercial flexibility and

celerity free from departmental rigidity, slow motion procedures and

122 SUPREME COURT REPORTS [1981] 2 S.C.R.

A hierarchy of officers. That is why a considerable part of the public

undertakings

is in the corporate sector.

It is interesting that with the industrial expansion, economics was

assisted by jurisprudence and law invented or at least expanded the

corporate concept

to facilitate economic

developmen" consistently with

B the rule

of law.

Said Woodrow Wilson, several decades back : (')

c

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E

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G

H

There was a time when corporations played a minor part

in our business affairs, but now they play the

chief part, and

most men are the servants

of corporations.

And Franklin D. Roosevelt mourned : (

2

)

Concentration of economic

p,ower in all embracing cor-

porations

...... represents private enterprise become a kind

of private government which

is a power unto itself-a

regi­

mentation of other people's money and other people's lives.

This legal facility of corporate instrument came to be used by the State

in many countries as a measure of immense convenience especially in;

its commercial ventures. The trappings of personality, liberation from

governmental stiffness and capacity for mammoth growth, together with

administrative elasticity, are the attributes and, advantages of corpora­

tions.

A corporation

is an artificial being, invisible, intangible,

and existing only in the contemplation of the

law. Being

the mere creature of the

law, it possesses only those

proper­

ties which the charter of its creation confers on it, either

expressly, or

as incidental to its very existence. Those are

such

as are supposed best calculated to effect the object for

which it

was created. Among thei most important are im­

mortality, and, if the expression be allowed, individuality;

properties by which a perpetual succession of many persons

are considered the same, and may act as a single

indivi­

dual. (

8

)

Although corporate personality is not a modern invention, its adapta­

tion to embrace the wide range of industry . and commerce has a

modern flavour. Welfare States like ours called upon to execute many

economic projects readily resort to this resourceful legal contrivancei

because of its practical advantages without a wee-bit of diminution ill

ownership and control of the Undertaking. The true owner is ~he

(1) 1912-13 speeches : The New.Freedom, Doubleday & Co. 1913.

(2) Acceptance Speech, Democratic NationaI:eonvcntion, June 27, 1936.

(3) John Marshal, Dartmouth College v. Woodward, 4 Wheaton 518 (1819).

l!I

'

' ..

-I

~

'

'

I

..

SOM PRAKASH REKHI v. UNION (Krishna Iyer, 1.x 123

State, the real operator is the State and the effective controllerate is thtj A

State and accountabilit~ for its actions to the community and to Parlia­

ment

is of the

State. Nevertheless, a distinct juristic person with it.

corporate structure conducts the business, with the added facilities

enjoyed by companies and keeping the quasi-autonomy which come~

in handy from the point of view of business management. Be it

remembered though that

while the formal ownership

is cast in tho cor-R

porate mould, the reality reaches down to State control. Witk this

background

we have to read s. 7 of the Act which runs thus :

7.

(1) Notwithstanding anything contained in sections

3, 4 and 5, the Central

Government may, if satisfied that a

Govermnent company

is willing to comply, or

has complied

with such terms and conditions

as that

Government 'may

think fit to impose, direct by notification that the right, title

and interest and the liabilities of Burmah Shell in relation to

any

of its undertakings in India, shall instead of continuing

to vest

in

the Central Government, ve,rt in the Govermnent

company. . . .

(emphasis added)

The core fact is that the Central Government, through this provision,

chooses to make over, for better management, its awn property to its

own offspring. A government company is a mini-incarnation of

Government itself, made up of its blood and bones and given corporate

shape and status

for defined objectives, not beyond.

Nor

is

this any isolated experiment in government formally transr

ferring ownership to a company. There are a number of statutory

take-overs in India

as in other countries, where the initial vesting

i~ in

government, followed

by a later transfer to another instrumentality­

may be an existing government company or a

corporation created by

statute or even a society or other legal person. In the present case,

a government company was created anteriorly and by virtue of a noti­

fication under s. 7 it became the transferee of the right, title and interest

as well as the liabilities of Burmah Shell .

The device is too obviou! for deception that what is done is a

formal transfer from government to a government-company as the

notification clearly spells out :

lfl exercise of the poweri conferred by sub-section ( 1)

of Section 7 of the Burmah Shell (Acquisition of Under­

takings in India) Act, 1976 (2 of 1976), the Central Gov­

emment,

being satisfied

that Burmah-Shell RefineriCll Ltd., a

6overnment company i1 willing to comply with such terms ·

and conditiO!lll as may be imposed by the Central Go,-emment ·

9-1281 SCI/80

,_ -""lit"

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124 SUPREME COURT REPORTS [J98J] 2 S.C.R.

hereby directs that the right, title and intere,,t and the

liabilities of Burnwh-Shell Oil Storage and Distributing Co.

of India Ltd. in relation to its undertakings in India, shall,

instead of continuing to vest in the Central Government vest,

with effect from the twenty fourth day of January, 1976, in

Bwmah-Shell Refineries Ltd.

This is the well-worn legal strategy for government to run economic

and like enterprises. We live in an era of public sector corporations,

the State being the reality behind, Law does not hoodwink itself and

what is but a strategy cannot be used as a strategem :

These are the facts when we come to brass tacks. Fact& form the

raw matedal out of which the finished product of judicial finding is

-,

fabricated after processing through established lega� principles. Indeed,

in life as in law "it is as fatal as it is cowardly to blink !acts because

they are not to our taste". What, then, ar\' the basic facts available

from the Act ? Constitutional law is not a game of hide and seek

but prJctical real-life conclusions. So viewed, we are constrained to

hold that Burmah-Shell, a government company though, is but the

alter ego of the Central Government and must, therefore, be; treated

as definitionally caught in the net of 'State' since a juristic veil worn

tor certain legal purposes cannot obliterate the true character of, the

entity for the purposes of constitutional law.

If we distil the essence of Art. 12 textually and apprehend the

expanded meaning of "State" as interpreted precedentially, we may

solve the dilemma as to whether the Bharat Petroleum is but a double

of Bharat Sarkar. Let us be clear that the jurisprudence bearing on

corporations is not myth but reality. What we mean is that corporate

personality is a reality and not an illusion or fictitious construction of

the law, It is a legal person. Indeed, 'a legal person' is any subject­

matter other than a human being to which the law attributes personality.

"This extension, for good and sufficient reasons, of the conception of ·r

personality. . . . is one of the most noteworthy feats of the lega1

imagination."(') Corporations are one species of legal persons in­

vented by the law and invested with a variety of attributes so as to

achieve certain purposes sanctioned by the law. For those purposes,

a corporation or company has a legal existence all its own. The

c!JaracteristiCl! of corporations, their rights and liabilities, functional

autonomy and juristic status, are jurisprudentially recognised as of a

distinct entity even where such corporations are but State agencies or

instrumentalitie�. For purposes of the Companies Act, 1956, a

government company bas a distinct personality which cannot be con-

(!) �almond, Jurisprudence, 10th Bdn. pp. 324-325.

_)

-f,

SOM PRAKASH REKHI V. UNION (Krishna Iyer, JJ 125

fused with the State. Likewise, a statutory corporation constituted

to carry on a commercial or other activity

is for many purposes a dis­

tinct juristic entity not drowned in the

sea of

St!te, although, in subs­

tance, its existence may

be but a projection of tbe State. What

wei

wish to emphasise is that _1*rely because a company or other legaj_

person has functional and jural individuality for certaiq purposes and

in~ain_aE~~?.~ fuw, 1t_does_n0_.g~cessadl[Io1fow that fo~-tlleeffe"c·

live enforcement of fundamental rights under our constitutional scheme,

,\:e shouicfnot scan the real character of that entity; and if it is found

to be a mere agent or surrogate of the State, in fact owned by the

State, in truth controlled by tbe State and in effect an incarnation of

tbe State, constitutional lawyers must not blink at these facts and

frustrate the enforcement o~ fundamental ri ts des ite tbe inc!usivg

definit10n o . t at any authority controlled by the Government

-Of fudia is itself State, Law has many dimensions and fundamental

facts must govern the applicability of fundamental rights in a given

situation]

Control by Government of the corporation is writ large in the Act

and in the factum of being a government company. Moreover, here,

s. 7 gives to tbe

government company mentioned in it a statutory recog­

nition, a legislatiVe sanction and a status above a mere government

company. If the entity is no more tban a company under the Company

Law or society under

_the law relating to registered societies or

co­

operative societies you cannot call it an authority. A ration shop

run

by a cooperative store financed by Government is not an authority

being a mere merchant, not a sharer of

State power. 'Authority' in

law belongs to the province of power :

Authority (in Administrative Law)

is a body having

jurisdiction

in certain matters of a public

nature.(')

Therefore, the "ability conferred upon a person by the law to

alter, by his own will directed to that end, the rights, duties, liabilities

A

B

c

D

E

F

or other legal relations, either

of himself or of other persons"(') must G

be present ab extra to make a person an 'authority'. When the

person

is an 'agent or instrument of the functions of the

Stare' the

power is public. So the search here must be to see whetber the Act

vests authority, as agent

or instrument of the State, to affect the legal

relations of oneself

oi otbers.

(I) The Law Loxicon of British India, P. Ramanatha Aiyar, 1940 p. 101.

(2) Salmond, Jurisprudence, 10th Edn. p. 243.

H

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126 SUPREME COURT REPORTS (1981] 2 S.C.R.

Sometimes the test is formulated, over-simplified fashion, by asking

whether the corporation is formed by a statute or under a statute.

The true test is functional. Not how the legal person is born but why

it is created. Nay more. Apart from discharging functions or doing

business as the proxy of the State, wearing the corporate mask there

must

be an element of ability to affect

legal relations by virtue of power

vested in it by law.

In the present instance, the source of both, read in the

light of

ss. 3 and 7, is saturated with SJate functions. Avowedly, the statutory

contemplation, as disclosed by

s. 7,

is that the company should step

into the shoes of the executive power of the State. The legislative

milieu in which the second respondent came to be !he successor of

Burmah Shell suggests that the former is more than a mere company

registered under the Companies Act.

It has a statutory flavour

acquired under

s. 7. Moreover, everything about the second respon­

dent in the matter of employees, their provident, superannuation and

welfru:e funds, is regulated statutorily unlike in the case of ordinary

companies. Sections 9 and 10 deal with these aspects. These two

provisions which regulate the conditions of service and even provide

for adjnclication

of disputes relating to employees .indicate that some of

the features of a statutory corporation attach to this government com­

pany.

Sections 9 and 10, in terms, create rights and duties vis a vis

the government company itself apart from the Companies Act. An

ordinary company, even a government company simpliciter has not

the obligation cast on the second respondent by ss. 9 and 10. And

s.11 specifically gives the Act primacy vis a vis other laws. Section

12, although it has no bearing on the specific dispute we are concerned

in this case,

is a clear pointer to the statutory

charac!er of the govern­

ment company and the vesting

of an authority therein. This

provi•ion

elothes the government company with power to take delivery of the

property of Burmah Shell from every person in whose possession,

~ustody or control such property may be. There are other powefs

akin to this one in s. 12. The provision for penalties if any person

meddles with the property of the second respondent emphasises '1le

special character of this government company. Equally unique is the

protection conferred by s. 16 on the government company and its ofli­

cers and employees "for anything which is, in good faith, done er

mtended to be done under this Act". Such an immunity does not

attach to employees of companies simpliciter, even if they happen to

be government companies.

In the same strain is the indemnity

coa­

ferred by s. 18. This review, though skeletal, is sufficient strikingly

to bring home the point that the Corporation we are concerned with is

more than a mere government company. Whatever its character

SOM PRAKASH REKHI V. UNION (Krishna fyel', J.), 127

·antecedent to the Act, the pro~isions we have adverted to have trans­

formed it into an instrumentality of the Central Government with a

strong statutory flavour super-added and clear indicia of power to

make it an "authority". Although registered as a company under the

Indian Companies Act, the second respondent is clearly a creature of

the statute, the Undertaking having vested in it by force of s. 7 of the

Act. The various provisions to which our attention was drawn, an

elaboration of which is not called for, emphasise the fact that the

second respondent is not a mere company but much more than that

and has a statutory flavour in its operations and functions, in its powers

· and duties, and in its personality itself, apart from being functionally

and administratively under the thumb of government. lU is a limb of

government, an agency of the State, a vicarious creature of statute'

working on the wheels of the Acquisition Act. We do not mean to

say that for purposes of Art .. 309 or otherwise this government com­

pany is State but limit our holding to Art. 12 and Part III.

We may now proceed to examine the authorities cited before us

by both sides on this point with special reference to Art. 12 of the

Constitution vis a vis government companies and like bodies. Shri

G. B. Pai concedes that the recent trend of rulings of this Court has.

brO!ldened the concept of "authorities .... under the control of the

Government of India." For instance, the Airport Authority Case(')

l!lld the U.P. Warehousing Corporation case(

2

). His submission is

tllat the core question which called for decision in those cases did not

demand pronouncement on the larger issue of what is "State" under

Art. 12 and also ran counter to the earlier rulings by larger benches.

True, a tour of the case-law runs

zigzag, but guided by

principle and

jurii;prudential discernment, it is possible to reach the same destination

to which the two rulings referred to above take

us.

Shri G. B. Pai

prei;sed us to reconsider the latest decision~ in view of their error when

read in the perspective of prior rulings by referring the issue to a larger

beech. We will presently explain by examining the earlier cases why

we hold the recent decisions to be right and reconcilable with the broad

npproach in the older authorities. Moreover, rulings of this court are

calculated to settle the law and not to unsettle it by reconsideration in

season and out merely because it hurts one party or the other or tastes:

sour for one judge or the other.

If incompatibility between the ratios stares us in the face we must clear the confusion by the process suggest·

ed by Shri Pai. But we are satisfied that the Airport Authority

A

B

c

D

E

F

G

{I) Ramana Dayaram Shttty v. International Airport Authority of India and Ors.

[l979J 3 s.c.c. 489. B

(2) Managing Director Uttar Pradesh Warehousing Coporation and Anr. v. Vljaya

Narayana Vajpayee (1980) 3 SCC 459.

128 SUPREME COURT REPORTS (1981) 2 S.C.R.

A (supra) has been consistently and correctly decided and, being bound

by it, held that a writ will lie against the second respondent under

Art. 32. An explanatory journey is necessary to

make good this

ossertion.

B

c

D

E

F

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H

The

UP Ware housing Corporation case (supra )-the latest on the

point-related to a statutory corporation and the litigation was by an

employee for wrongful dismissal. One of tbe questions considered there

was the maintainability of a writ petition against a statutory corpora,­

tion at the instance of an employee. The court reviewed many deci-

6ions, Indian and English, and upheld the employee's contention that

the writ could and should issue

to such a body if illegality were esta­

blished.

It is significant that pointed reference has been made to

Sukhdev

Singh('), Airport Authority (supra), and the judgment of the

House of Lords in

Malloch v. Aberdeen

Corpn.(2), Sarkaria, J.

advertec' to the observations of Lord Wilberforce that in cases where

there

is an element of public employment

or service, :ir support by

statute or something in the nature of public

office or status, the court

would correct illegal acts.

Of course, the specific question as to

whetl!er such a body conld be regarded as 'State' did not and could

not arise in th(l English case. But it did arise in the Airport Authority

(supra) where Bhagwati, J. launched on an international survey of this

branch of jurisprudence and highlighted the factors which made a legal

pers;:m-a statutory corporation, a government company or even a

registered society-"an agency or instrumentality of government" and

therefore

an 'authority' for purposes of Art. 12. The forensic focus

was turned sharply by one of us (Chinnappa Reddy, J. who was party

to that decision) on the target issue of what it

"the State" for purposes

of Part III. The crucial observations which have pertinence to the

point argued before us deserve excerption and enjoy our affirma­

tion:

/

I find it very bard indeed to discover any distinction on

principle between a person directly under the e;nployment

of the government and a person unden the employment of an

agency or instrumentality

of the

governmen~ or a corporation,

set up under a statute or incorporated but wholly owned by

the government.

It is self-evident and trite to say that the

function of the

State has long since ceased to be confined to

the preservation of the public peace, the exaction of taxes

and the defence, of its frontiers.

It is now the function of the

(I) Sukhdev Singh v. Bhagatram [1975] 3 S.C.R. 619.

(2) [1971] I WLR 1578.

SOM PRAKASH REKHI v. UNION (Krislll/a Iyer, J.) 129

State to secure 'social, economic and political justice', to

preserve 'liberty of thought, expression, belief, faith and

worship', and to ensure 'equality of status and of opportu­

nity'. That

is, the proclamation of the people in the preamble

to

ttc Constitution. The desire to attain these objectives

has necessarily resulted i'.n intense governmental activity in

manifoid

ways. Legislative and executive activity have

reached

very far and have touched very many aspects of a

citizen's life. The government, directly or through the cor­

porations, fct up by it or owned by it, now owns or manages,

a large number of industries and institutions.

It is the

biggest builder in the country. Mammoth and minor irri­

gation projects, heavy and light engineering projects, projects

of various kinds

are undertaken by the government. The

government is also the biggest trader in the ccuntry. The

State and the multitudinous agencies and corporation:; set

up by it are the principal purchasers of the produce aucl the

products of our country and they control a vast and complex

machinery of distribution. The government, its agencies

and instrumentalities, corporations set up by the governinent"

under the statutes and corporations incorporated under the

Companies Act but owned by the Government have thus

become

the biggest employers in the country. There is no

good

re:;son why, if government is bound to observe the

equality clauses of the Constitution in the matter of employ­

ment and

in its dealings with the employees, the corpora­

tions set up or owned by the govenunent should not be

equally bound and

why, instead, such corporations

could

become citadels of patronage and arbitrary action. In a

country like ours which teems with population, where the

State,

its agencies, its instrumentalities and

its corporations

are tile biggest employers and where millions seek cmplc y­

ment anJ security, to confine the applicability of the equality

clauses 0f the Constitption, in relation to matters of employ­

ment, strictly

to direct employment under the. governn;ert is

perhaps to mock at the Constitution and the

people. Some

the employee beyond the reach of the rule which denies

him

the employee beyond the reach of the rule which denies

him

access to a court to enforce a contract oif employment and

denies him the protection of Articles 14 and 16 of tk 0)115-

titution. After all employment in the public sector has

grown to vast dimensions and employees in the oublio sector

often discharge as onerous duties as civil servant9 and parti-

A

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130 SUPREME COURT REPORTS [1981] 2 S.C.R.

cipate in activities vital to our country's economy. In grow­

ing realisati01J. of the importance of employment in the pub­

lic sector, Parliament and the Legislatures of the States

have declared persons in the service of local authorities,

government companies and statutory corporatiomi as public

servants and, extended· to them by express enactment the

protection usually extended

to civil servants from suits and

prosecution.

It

is, therefore, but right that the independence

and integrity of those employed in the public &ector should

be secured

as much as the independence

and integritv of

servants.

The compellin~ force of this reasoning in the Indian setting and coe.s­

titutional matrix cannot be missed.

Let us dilate a little on the living essenco of constitutional funda­

mentals

if

we are net to reduce fundamental rights to paper hope~ Md

people's dupes ! The judicial branch shall not commit breach of faith

with the bill of rights by interpretative exoneration of the State from

observance of these founding faiths. The higher values enacted into

Part III of the Constitution certainly bind the State in its executive

and legislative branches. They are constitutional guarantees to the

Indian people, not fleeting promises

in common enactments.

So long

as they last in the National Charter they should not be truncated in

their application unless a contra-indication

is

clearly written into the

prescription,

a la Arts. 3 lA, 31B and 31 C. Art. 12 is

a special defi­

nition with a broader goal. Far from restricting the concept of State

it enlarges the scope to embrace

all authorities under

tho control of

Government. The constitutional philosophy of a democratic, SOciali1t

Republic mandated to undertake a multitude of socio-economic opera-

tions inspires Part IV and so we must envision the State entering the

vast territory of industrial and commercial activity, competitively or

inonopolistically, for ensuring the welfare of the people. This expan­

sive role of the State under Part IV is not played at the expense of

the cherished rights of the people entrenched in Part

III aince

· both

the sets of imperatives are complementary .and co-exist harmoniously.

Wherever the Constitution has felt the need to subordinate Part ill to

Part IV it has specificated it and, absent such expression provision,

both flie Parts must and can flonrish happily together given benign

judicial comprehension

a la Kera/a v. Thomas(I). There is no inherent

conflict between the two parts if orchestrated humanely.

We are at

pains

to emphasise this perspective because the substance of

Part ill,

H save where the Constitution says so, shall not be sacrificed at the altar

of Part IV by the strategem of incorporation.

It is well

known, and

(lJ fl976J 2 sec 310.

'

SOM PRAKASH REKHI v. UNION (Krishna Iyer, J. ): 131

surely within the erudite and experienced ken of our 'fonnding fathers',

that Government embarks

on myriad modern commercial activities by resort to the jurisprudential gift of personification through incorpora­

tion.

This contrivance of carrying on

business activities by the State

through statutory corporations, government companiei and other

bodies with legal personality, simplifies and facilitates transactions

and operations beyond the traditional and tardy processes of govern­

mental desks and cells noted for their red tape exercise and drowsy

dharma. But to use the corporate methodology is not to liberate the State from its basic obligation to obey Part III. To don the mantle of

company is to free the State from the inevitable constraints of govern­

mantaI slow-motion, not to play truant with the great rights. Other­

wi»e, a cunning plurality of corporations taking over almost every

State

business-the

post and the rail-road, the T.V. and the radio,

every economic ministry's activity, why, even social welfare

work­wlll cheat the p'eople of Part III rights by the easy plea : ''No admis­

sion for the bill of rights; no State here." From Indian Posts and

Telegraphs Limited to Indian Defence Manufacturers Limited, from

Social Welfare Board to Back.ward aasses Corporation the nation will

be told that 'the State has ceased to be, save for the non-negotiab~

iOYereign functions; and fundamental rights may sufier eclipse only to

be viewed in museum glass cases. Such a situation will be a treachery

on the founding fathers, a mockery of the Constitution and a govern­

ment by puppetry because the crowd of corporations which have carv­

ed oat all functions will still be controlled completely by the switch

bollds of bureaucrats and political bosses from remote control rooms

in GOYernment Secretariats. The extended definition of "the State" in

Art. 12 ii; not to be deadened but quickened by judicial construction.

Before our eyes the corporate phenomenon ill becoming ubiquitous.

What wa» archaicly done yesterday by government departments is

alertly executed to-day by government companies, statutory corpora­

tiOllll and like bodies and this tribe may legitimately increase tomorrow.

This efficiency is not to be purchased at the price of fundamental

rights.

As

Mathew J. stated ih V. Pumum Thomas v. State of

Kerala(') :

The Government, is not and should not be as free as an

individual in selecting the recipients for its largesse. Whatever

its activity, the Government is still the Government and will

be 1ubject to restraints inherent in its position in a demo­

ocatic society. A democratic Government cannot lay down

arbitrary and capricious standards for the choice of persons

with whom alone it will deal.

(I) AIR 1969 Ker 81.

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132 SUPREME COURT REPORTS [1981] 2 S.C.R.

A What's in a name that which we call a rose

B

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By any other name wou"d smell as sweet.(')

And the State is fragrant with fundamental rights whatever the legal

hue or jural cloak of its surrogate. And, to alter, the imagery, Maricha

is Ravana, the misleading golden deer mask notwithstanding!

This court in

Airport Authority (supra) pointed its unanimous.

finger

on these events and portents :

Today with tremendous expansion of welfare and social

service functions, increasing control of material and econo­

mic resources and large scale assumption

of industrial and

commercial activities by the

State, the power of the execu­

tive Government to affect the

lives

o'f the people is steadily

growing. The attainment of socio-eeonomic justice being a

conscious end of State policy, there is a vast and inevitable

increase in the frequency with which ordinary citizens came

into relationship of direct encounter with State power-holders.

This renders it necessary

to structure and restrict the power

of the executive Government so as to prevent its arbitrary

application or exercise

.......... .

Today the Government in a

welfare State, is the regu­

lator and dispenser of special services and provider

of a

large number

of benefits, including jobs, contracts, licences,

quotas, mineral rights,

etc. The Government pours forth

wealth,

money, benefits, services, contracts, quotas and licen­

res. The valuables dispensed by Government take many

forms, but they all share one characteristic. They are steadily

taking the place of traditional forms of wealth. These valu­

ables which derive from relationships of Government are of

many kinds. They comprise social security benefits, cash

grants for political sufferers and the whole scheme

of

State

. and local welfare. Then again, thousands of people are em­

ployed in the State and the Central Governments and local

authorities. Licences are required before one can engage

in

many kinds of businesses or work. The power of giving

licences means power to withhold them and this gives control

td the Government or to the agents of Government on the

lives of many people. Many individuals and many more

business enjoy largesse in the form of Government contracts

.... All these mean growth in the Government largesse and

with the increasing magnitude and range

of governmental

(1) Romeo and Julliet I!, ii

-43.

SOM PRAKASH REKHI v. UNION (Krishna Iyer, !.) 133

functions as we move closer to a welfare State, more and A·

more of our wealth consists of these new forms.

We do not suggest that there is any vice at all in government undec·

taking commercial or other activities through the facile device of com­

paniei or other bodies. But to scuttle Part III through the alibi of

'company, not

State'-'ay,

there's the rub !' The rationale of this pro-B·

position is well brought by Bhagwati, J : (I)

So far as India is concerned, the genesis of the emer­

gence

of corporations as instrumentalities or agencies of

Government is to be found in the Government of India Reso­

lution

on Industrial

Policy dated April 6, 1948 where it was

stated inter alia that "management of State enterprise wi.ll as

a rule be through the medium of public corporation under

the statutory control of the Central Government who w\ll

assume such powers as may be necessary to ensure this". It

was in pursuance of the policy envisaged in this and subse­

quent resolutions on industrial policy that corporations were

created by Government for setting up and management

of

public enterprises and carrying out other public functions.

Ordinarily these functions could have been

c:arried out by

Government departmentally through its service personnel,

but the instrumentality or

agency of the corporations was

resorted to in these cases having regard to th.e nature of the

task to be performed.

The corporations acting

as instrumen-

tality or agency dfi Government would obviously be subject

to the same limitations in the field of constitutional and ad­

mlriistralive law as Government itself, though in the eye of

the law, they would be distinct and independent legal entities.

If Government acting through: its officers is subject to certain

constitutional and public

law

limitations, it must follow a

fortiori

that

Government acting through the Instrumentality

or agency of corporations should equally be subject to th~

same limitations.

D·

(emphasis added) G'

Article 12 gives the cue to forbid this plea. "Other authorities

...... under the control of the Government of India" are comprehen-

sive enough to

take.

care of Part III without unduly stretching the

meaning of "the State" to rope in whatever any autonomous body 0

which has some nexus with government. A wide expansion coupled

ell [1979] 3 sec 489 at 506-507.

134 SUPREME COURT REPORTS [1981] 2 S.C.R.

A with a wise limitation may and must readily and rightly be read into

the last words of Art. 12.

D

G

Addressing itself to the question of identifying those bodies which

are agencies or instrumentalities of Government, the court, in Airport

Authority, observed :

(')

A corporation may be created in one of two ways. It may

be either established by statute or incorporated under a law

such as the Companies Act, 1956

or the Societies Registration

Act,

1860. Where a corporation is wholly controlled by Gov­

ernment not only in its policy-making but also in carrying

out the functions entrusted to it by the law establishing it

or by the charter of its incorporation, there can be no doubt

that it would be an instrumentality or agency of Govern­

ment.

..... When does such a corporatiO'll become an in­

strumentality

or agency of Government

? Is the holding of

the entire share capital of the corporation by Government

enough or is it necessary that

in addition, there should be a

certain amount

of direct control exercised by Government

and,

if so, what should be the natnre of such control ?

Should

the functions which the corporation is charged to carry out

possess any particular characteristic or feature, or is the

natnre of the functions immaterial ? Now, one thing is clear

that if the entire share capital of the corporation is held by

Government,

it would go a long way towards indicating that

the corporation is an instrumentaUty or agency

of Govern­

ment .... What then are the tests to determine whether a

co'rporation established by statute or incorporated under law

is instrumentality or agency of Government ? It is not

possible to formulate an all-inclusive or exhaustive test which

would adequately answer this question. There is no cut and

dried formula which would provide the correct division of

corporations into those which are Instrumentalities or agen­

ciCll ot Government and those which are not.

(emphasis added)

The court proceeded to crystallise the tests to determine the 'State'

completion of corporate bodies. beyond furnishing the full share

capital : (')

But "a finding of State financial support plus an unusual

H degree df control over the management and policies might

(I) Ibid. at 507.

(2) (1979] 3 sec 489 at 508-509.

SOM PRAKASH REKHI v. UNION (Krishna Iyer, J.), 135

lead one to characterise an operation as State action". Vi de A

Sukluiev v. Bhagatram('). So also the existence of deep

and pervasive State control may afford an indication that the

Corporation is a State agency or instrumentality. It may also

be a relevant factor to consider whether the corporation en-

joys monopoly status which is State conferred or State pro-

tected. There can be little doubt that State conferred or B·

State protected monopoly status would be higbly relevant in

assessing the aggregate weigbt of the corporalio'.ns' ties to

the State.

There is also anatller factor which may be regarded as

ha viug a bearing on this issue and it is whether the operation

of the corporation is an important public function. It has

been held in the United States in a number of cases that the

concept of private action must yield to a conception of State

actio'n where public functions are being performed. Vide

Arthur S. Millers: The Constitutional Law of the 'Security

State.(')

If the functions of the corporation are of public import­

ance and closely related to governmental functions,

it would

be a relevant factor in classifying the corporation as an

ins­

trumentality or agency of Government. This is precisely

what was pointed out by Mathew, J. in

Sukhdev v.

Bhogat­

ram (supra) where the learned Judge said that "institutions

engaged in matters of high public interest or performing pub­

lic functions are by virtue of the nature

of the functions

per­

formed government agencies. Activities which are too funda­

mental

to the society are by definition too important not to

be considered government

functions."

Bhagwati, J. dwelt on the functional formula and reasoned : (')

But the decisions show that even this test of public or

governmental character of the function is not easy of appli­

cation and does not invariably lead to the correct inference

because the range of governmental activity

is broad and

varied and

fuerely because an activity may be such as may

legitimately

be carried on by Government, it does not mean

that a corporation, which is olherwise a private entity, would

be an instrumentality

er agency of Government by reason

of carrying on such activity. In fact it is difficult to disting-

(1) fl975J 3 sCR 619, 650 : [1975J 1 sec 421, 454.

(2) JO Stanford Law Review 620 at 664.

(3) [1979] 3 sec 489 at 510.

('

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13~ SUPREME COURT REPORTS

[1981] 2 S.C.R.

uish ?etween governmental functions ahd non-governmental

funct10ns. Perhaps_ the distinction between gavernmental

and non-governmental functions is not valid any more in a

social welfare State where the laissez faire is an outmoded

concept and Herbert Spencer's social statics has no

place. · : ... But the public nature of the function, if impreg­

nated with governmental character or "tied or entwined with

Government" or fortified by some other additional factor ,

may render the corporation an instrumentality or agency of

Government. Specifically, if a department of Government

is

transferred to a corporation, it would be a strong factor sup­

portive of this inference.

The conclusion is impeccable that if the corporate body

is but

an 'instrumentality

or agency' of Government, then

Part III will tram­

mel its operations.

It is a

cas~ of quasi-gorvernmental beings, not of

non-State entities. We have no hesitation to hold that where the

chemistry of the corporate body answers the test of 'State' above out­

lined it comes within the qefinition in

Art. 12. In our constitutional

scheme where the commanding heights belong to the public sector of

the national economy, to grant absolution

to government companies

. and their

ilk from Part III may be perilous. The court cannot con-

nive at a process which eventually makes fundamental rights as rare as

"ro'ses in December, ice in June"(!). Article 12 uses the expression

"other authorities" and its connotation has to be clarified. On this

facet also, the

Airport Authority case supplies a solution :

(')

If a statutory corporation, body or other authority is an

instrnmentality

or agency of the Government, it would be an

'authority' and therefore

'State' within the meaning of that

expression in Article 12.

The decisions are not uniform

as to whether being an instrnmen­

tality or agency of Government

ipso

jure renders the company or other

similar body 'State'. This again involves a navigation through pre­

cedents and Bhagwil.ti, J. In Airport Authority (supra) has spoken for

the Court, after referring to

Rajasthan Ekctricity Board v. Mohan

Lal(')

Sukhdev v. Bhagatram(4), Praga Tool Corporation v. C. A.

Immanuel('), Heavy Engineering Mazdoor Union v. State of Bihar("),

(1) As Lord Byron lamented in English Bards and Scottish Reviewers.

(2) [1979] 3 sec 489 at 517.

(3) [1967] 3 SCR 377.

(4) [1975] 3 SCR 619.

(5) [1969] 3 SCR 773.

(6) [1969] 3 SCR 995 .

-

SOM PRAKASH REKHI v. UNION (Krishna Tyer,].) 137

S. L. Aggarwal v. General Manager, Hindustan Steel Ltd.,(') and

Sabhajit Tewari v. Union of India(') :

We may point out here that when we speak of a Corpo­

ration being an instrumentality or agency of Government,

we

do not mean to suggest that the Corporation should be an

agent

of the Government in the sense that whatever it does

should be binding on the

Gc<vernment. It is not the rela­

tionship of principal and agent which is relevant and material

but whether the corporation is an instrumentality of the

Government in the sense that a part of the governing power

of the State is located in the Corporation and though the

Corporation

is acting on its own behalf and not on behalf of

the Government, its action is really in the nature of

State

action. (

3

)

Let us cull out from Airport Authority (supra) the indicia ol "other

authorities .... under the contro1 of the Government of India" bring­

ing a corporation within the delinition

of

"the State". The following

factors have been emphasised in that ruling

as telling, though not

clinching.

These characteristics convert a statutory corporation, a

government company, a cooperative society and other registered

society

or body into a

State and they are not confined to statutory cor­

porations alone. We may decoct

the tests for ready reference :

1.

"One thing is clear that if the entire share capital of the

corporation

is held by Government. it would go a long way

towards

indicating that the corporation is an instrnmentality or agency of

Government."

2. Existence of "deep and pervasive State control may afford an

indication that the Corporation

is a

State agency or instrumentality."

3. "It may also be a relevant factor .... whether the corpora­

tion enjoys monopoly status which is the State conferred or State

protected."

4. "If the function~ of the corporation are of public importance

and closely related to governmental functions, it would be a relevant

fac'tor in classifying the corporation as an instrumentality or agency

of Government."

S. "Specifically, if a department of Government is transferred to

a corporation,

it

would be a strong factor supportive of this inference"

(l) (1970] 3 SCR 363.

(2) [1975] 3 SCR 616.

(3) [l979J 3 sec 489 at 518.

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138 SUPREME COURT REPORTS [1981] 2 S.C.R.

of the c<yporation being an instrumentality or agency of Govern­

ment."

The finale is reached when the cumulative effect of all the re!e-•

vant factors above set out is assessed and once the body is found

to be an instrument or agency of Government, the further conclUllion

emerges that it is 'State' and is subject to the same constitutional

limitations

as Government.

This divagation explains the ratio of the Airport A uthori~y

(supra) in its full spectrum. There the main contention was that

the said authority, a statutory corporation,

was not State and en­

forcement

of fundamental rights against such a body was impermis­

sible. As is apparent from the extensive discussion above, the

identical issue confronting

us as to what are the

"other authorities"

contemplated by Art. 12 fell for consideration there. Most of the

rulings relied on by either side received critical attention there and

the

guidelines and parameters spelt out there must

ordinarily govern

D our decision. A careful study of the features of the Airport Autho­

rity and a government company covered by ss. 7, 9, 10 and 12 of

the Act before

us discloses a close parallel except that the Airport

Authority is

created by a

3tatute while Bharat Petroleum (notified

under

s. 7 of the Act) is recognised by and clothed with rights and

E

F

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duties by the statute.

There is no doubt that Bhagwati, J. broadened the scope of

State under Art. 12 and according to Shri G. B. Pai the observa­

tions spill over beyond the requirements of the case and must be

dismissed as obiter. His submission is that having regard to the

fact that the International Airport Authority

is a corporation created

by statute

there was no occasion to go beyond the narrow needs of the

situation and expand upon the theme

of State in Art. 12 vis a vis Govern-

ment companies, registered societies and what not. He

assails

the decision also on another ground, namely, the contradiction

between Sukhdev(I) and Airport Authority('). We will examine

both these contentions and, incidentally, consider what the law laid

down in the other rulings is. We are free to confess that the propo­

sitions have not been neatly chiselled and presented in any of the

rulings and further, some measure ol' incongruity may be noticed if we

search for the same; but our approach is not to detect contradictions

but to discover a broad consensus it there be any and distil the

11

law in accordance therewith.

(1) [1975]3 SCR 619.

(2) [1979J 3 sec 489.

•

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SOM PRAKASH REKHI v. UNION (Krishna Iyer, J.) 139

We may first deal with Tewary's case(') where the question

mooted was

as to whether the C.S.I.R.

(Council of Scientific and

Industrial Research)

was

'State' under Art. 12. The C.S.I.R. is a

registered society with official and non-official members appointed by

Government and subject to some measure of control by Government

in the Ministry

of

Science and Technology. The court held it

was not 'State' as defined in Art. 12. It is significant that the

court implicitly assented to the proposition that

if the society

were really an agency

of the Government it would be

'State'. But

on the facts and features present there the character of agency of

Government was negatived. The rulings relied on are, unfortunate-

...,,~ ly, in the province of Art. 311 and it is clear that a body may be

'State' under Part III but not under Part XIV. Ray, C. J., rejected

the argument that merely because the Prime Minister was the

President or that the other members were appointed and removed by

Government did not make the Society a 'State'. With great respect,

we agree that in the absence of the other features elaborated in

Airport Authority case(2) the composition of the Governing Body

alone may not be decisive. The laconic discussion and the limited

ratio in

Tewary(

3

)

hardly help either side here.

Shri G. B. Pai hopefully took us through Sukhdev's case(') at

length to demolish the ratio in Airport Authority('). A majority of

three judges spoke through Ray, C.

J. while Mathew, J. ratiocinated diff­

erently

to reach the same conclusion. Alagiriswamy, J. struck

a dissenting note. Whether certain statutory corporations were

'State' under Art. 12 was the question mooted there al the instance

of the employees who invoked Arts. 14 and 16. The judgment of

!he learned Chief Justice sufficiently clinches the issue in favour of

the petitioner here. The problem

was posed

thu~ : (

6

)

In short

the question is whether these statutory corpo.

rations are authorities within the meaning of Article 12.

-\. The answer was phrased thus : (')

The employees of these statutory bodies have a statu­

tory status and they are enti!led

to

declaratioo of being in

employment when their dismissal

or removal is in contra­\"ention of statutory provisions. By way of abundant

caution

we state that these employees are not servants of

(I) Subhajit Tewary v. Union [1975] 3

SCR 616.

(2) fl979J 3 sec 489.

(3) [1975] 3 SCR 616.

(4) [1975) 3 SCR 619.

(5) [19751 3 SCR 619 at 624

(6) Ibid. at 624

10-1281 SCI/80

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140 SUPREME COURT REPORTS [1981] 2 S.C.R.

A the Union or the State. These statutory bodies are

"authorities" within the meaning of Article 12 of ti.

Constitution.

8

c

Thus, the holding was that the legal persons involved there { thrae

corporations, viz. The Oil and Natural Gas Commission, the

Industrial Finance Corporation and the Life Insurance Corporation)

were 'State' under Art. 12. The reasoning adopted by Ray, C. J.

fortifies the argumentation in Airport Authority.(')

Repelling the State's plea that these bodies were not 'other

authorities' under Art. 12, Ray, C. J. observed:{')

The State undertakes commercial functiOllll in combi-

nation with Governmental functions in a welfare State.

Govermnental function must be authoritative. It must be

able to impose decision by

or under law with authority.

The

element of authority is of a binding character. The

rules and regulations are authoritative because these rules

D and regulations direct and control not only the exercise of

powers by the Corporations but also all persons who deal

F

G

B

with these corporations ..... .

The expression "other authorities" in Article 12 has

been held by this Court in the Rajasthan Electricity Board

to be wide enough to include within it every authority crea­

ted by a statute and functioning within the territory of India,

or under the control of the Government of India. This

Court further said referring to earlier decisions that tlw

expression "other authorities" in Article 12 include all

constitutional or statutory authorities on whom powers are

conferred by law. The State itself is envisaged undet

Article 298 as having the right

to carry on trade

and busi­

ness. The State llS defined in Article 12 i3 comprehended

to include bodie3 created for tM purpose of promoting eco-f

nomic interests of the peopl6. The circumstance that th•

statutory body is required to carry on some activities of

the nature of trade or commerce doe• not indicate that tho

Board must be excluded from the scope of the word 'State'.

The Electricity Supply Act showed that the Boord had

power to give directions, the disobedience of which is puni-

shable as a criminal offence. The power to issue directiom

and to enforce compliance is an important Mpect

( empha1iK addul)

(1) f1979J 3 sec 489

(2) [1975] 3 SCR 619 at 634-635

'

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SOM PRAKASH REKHI v. UNION (Krishna Iyer, J.) 141

Dealing with governmental purposes and public uuthorities, the court A

clarified : (')

In the British Broadcasting Corporation v. Johns (Ins­

pector of Taxe3) (1965) (1 Ch. 32), it was said that persons

who are created to carry out governmental purpo!!~ enjoy

immunity like Crown 1ervants. Government purpo3u B

include the traditional provinces of Government as well as

non-traditional province3 of Government if the Crown has

constitutionally asserted that they are to

be within

the pro-

vince of Govern1111!nt ..... .

A public authority is a body which has public or statu­

tory duties

to perform

and which performs those duties

and carrie3 out its transactions for the benefit of the public

and not for privNte profit.

c

(emphasis added)

Taking up each statute and analysing its provisions the learned

0

Chief Justice concluded(') :

The structure of the Lite Insurance Corporetion indicates

that the Corporation is an agency of the Government carry­

ing on the exclusive bu!inesa of life insurana>. Each and

every provision 3how3 in no uncertain temu that th6 voice

is of the Central Gov~rnment al'ld the hand3 art1 alw of the E

Central Government.

Xll

Th~e provisions of the InduMrilll .Pinanee Corporation

Act show th&t the Corporfttion i3 in •D•ct managtd and

controlled by the Cmtral Gover11m«nt. F

(emphasis added)

TlY italicised portion pithily rums up the meat rA. the matter. It the

voice is

of the Government

and so also the hands, the face will not

hide the soul. There is nothing in this judgment which goes against

a government company being regarded as 'State'. On the contrary,

th• thrust of the logic and the generality of the law are far from

rllltrictive and apply to all bodiea which fill the bill.

Mathew,

J.

is more pootivo in hi11 conception c1' ·~tate' undet.

Art. 12 : (')

(I) [1975] 3 SCR. 619 at 635.

(2) Ibid. 639 and 641.

(3) Sukhdev v. B/wgatram [l91Sj 3 SC!l 619 al 64-4-45.

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142 SUPREME COURT REPORTS [1981] 2 S.C.R .•

The concept of State has undergone drastic changes in

recent years. Today State cannot be conceived of simply

as a coercive machinery wielding the thunderbolt of autho·

rity. It has to be viewed mainly as a service corporation.

"If we clearly grasp the character of the state as a

social agent, under>tanding it ratioillally as a form of service

and not mystically as an ultimate power, we shall differ

only

in respect of the limits of its ability to render

service."

(sec Mac Iver, "The Modem State" 183).

xx xx xx

A state is an abstruct entity. It can only act through

the instrumentality

or agency of natural or judicial per­

sons. Therefore, there

is nothing strange in the notion of

the state acting through a corporation and making it an

agency or instrumentality of the

State ..... .

The tasks of government multiplied with the advent of

the welfare state and consequently, the framework

of civil

service administration became increasingly insufficient for

handling the new tasks which were often of a specialised

and highly technical character. At the same time, 'bureau­

cracy' came under a cloud. The district of government by

civil service, justified or not,

was a powerful factor in the

development

of

a policy of public administration through

separate corporation which would operate largely accord­

ing to husiness principles and be separately accountable.

The public corporation, therefore, became a third arm

of the Government. In Great Britain, the conduct of basic

industries through giant corporation

is now a pennanent

feature of public life.

The Indian situation

is an a

fortiori case, what with Part IV of the )­

Constitution and the Government of India Resolution on Industrial

policy

of 1956 ?(')

Accordingly, the

State will progressively assume a pre­

dominant and direct responsibility for setting

up new indus­

trial undertakings and for developing transport facilities.

It will also undertake

State trading on an increasing scale.

Oi course, mere State aid to a company will not make its actions

State actions. Mathew,

J. leaned to the view that : (

2

)

I. Sukhdev v. Bha~atram [1975] 3 SCR 619 at 646.

2. !bide 650.

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SOM PRAKASH REKHI v. UNION (Krishna !ya. J.) 14 3

.... State financial support plus an unusual degree A

oi control over the management and policies might lead one

to characterise

an operation as state action.

Indeed, the

learned Judge went much farther : (')

Another factor which might be considered is whether the

operation

is an important public function. The combination

of state aid and the furnishing of an important public ser-

vice may result in a conclusion that

the operation should be

classified as a state agency. If a given function is of such

public importance and

so

clooely related to governmental

functions

as to be classified as a governmental agency, then even the presence or absence of state financial aid might be

irrelevant in making a finding of state action. If the func-

tion does not fall within such a description, then mere addi-

tion of state money would not influence the conclusion.

It must be

notic"-d that the emph~sis is on functionality plus State

control rather on the statutory character of the Corporation : (')

Institutions engaged in matters of high public interest or

performing public functions are by virtue of the nature of

the function perj'ormed government agencies. Activities

which are too fundamental to the society are by definition

too important not

to be

considered government functions.

We may read the ratio from the judgment of Mathew, J. where

he says :

(')

It is clear from the

provisions that the Central Go­

vernment has contributed the original capital of the Corpo­

ration, that

part of the profit of the Corporation goes to that Government, that the Central Government

exercises control over the policy of the Corporation, that

the Corporation carries on a business having great public

importance and that it enjoys a monopoly in the business.

I would draw the same conclusions from the relevant pro­

visions of the Industrial Finance Corporation Act wh;ch

have also been referred to in the aforesaid judgment. In

these circumstances, I think, these corporations are agen­

cies

or instrumentalities of the

'State' and are, therefore,

'State' within the meaning· of Article 12. The fact that these

corporations have independent personalities

in

the eye of

(I) Ibid 650.

(2) [1975] 3 SCR 619 at 651.

(3) Ibid 653-55.

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144

SUPREME COURT REPORTS [l'J81J 2 S.C.R.

law does not mean that they are not subject to the control.

of government or that they are not instrumentalities of the

government. These corporatiom are instrumentalities or

agencies of the State for carrying on businesses which

otherwise would have

been run by the

State departmentally.

If the state had chosen to carry on these businesses through

the medium of

gove=ent departments, there would

have

been no question that actions of these department. would be

'state action1<'. Why then should tho actions be not state

actions ?

xx xx xx

.. merely because a corporation has legal person­

ality ol' its own, it does not follow that the corporation

cannot be an agent or instrumentality of the state,

if it is

subject to control of government in all important matters of policy. No doubt, there might be scme distinction bet­

ween the nature of control exercised by principal ovrr agent

and the control exercised by government over public cor­

poration. That,

I

think is only a distinction in deg;ee. The

crux of the matter is that public corporation is a new typo

or Institution which has sprung from the new social and

economic functions of government and that it therefore does

n.)t neatly fit into old legal categories. lnstead c:A. forcing

it into them, the later should

be adapted to the needs

of

changing times and conilitibn~.

There is nothing in these observations to confine tho concopt of

State to statutory corporations. Nay, the tests are common to any

agency or instrumenllllity, the key factor being the brooding pre1ence

of the State behind the operation of the body, statutory or other.

A study

of Sukhdev's

case(') (a Constitution Bench decision of

this Court) yields the clear result that the preponderant cooside!'ations

for pronouncing an entity as State agency or instrumentality are finan­

cial re<ources of the State being the chief funding source, functional

character being governmental in essence, plenary control residing in

Government, prior history of the same activity having been carried

on by Government and made over to the new body and iODle ele­

ment of authority or command. Whether the legal person is a cor­

poration created by a statnte, as distinguished from under a statute,

is not an important criterion although it may be an indicium. Applying

(1) [1975] 3 SCR 619.

•

SOM PRAKASH Rl!KHI v. UNION' (Krishnllj Iyer, J.)i 145

the constellation of criteria collected by us from Airport Authority,(') A

on a cumulative basis, to the given case, there is enough material to

hold that the Bharat Petroleum Corporation is 'State' within the en­

larged meaning of Art. 12.

The Rajasthan Electricity Board case(') (the majority judgment

of Bbargava, J.) is perfectly compatible with the view we take oil B

An. 12 or has been expressed in Sukhdev(') and the Airport Autho­

rity('). 'The !ihort question that fell for decision was as o whether

the Elactricity Board was 'State'. There was no debate, no discUS&ion

~·and no decision on the issne of excluding from th~ area of

'State', under Art. 12, units incorporated under a statute as against

thOie created by a statute. On the other hand, the controversy w8S C

over the exclusion from the definition of State in Art. 12 corporations

e11g11ged in commercial activities. This plea for a narrow meaning

waio negatived by Bhargava, J. and in that context the learned Judge

explained the signification of "other authorities" in Art. 12 : (')

The meaning of the word "authority" given in Webster's D

Third New International Dictionary, which can be appli-

cable,

is

"a public administrative agency or corporation

having quasi-govermnental powers and authorised

to ad-

minister a revenue-producing public

enterprise." This dic-

lionary meaning of the word "authority" is clearly wide

enough

to include all

bodies created by a statute on which E

powers are conferred to carry out governmental or quasi­

governmental functions.

The expression

"other authorities"

is wide enough to include within it every authority created

by a statute

and functioning within the territory of India, or under the control of the Government df ;India; and we

do not see any reason to narrow down this meaning in the

F

context in which the words

"other authorities" are used in

Art. 12 of the Constitution.

xx xx xx

These decisions of the Court support our view that the

expression "other authorities" in Art. 12 will include all

constitutional on statutory authorities on whom powers con­

ferred may be for the purpose of carrying on commercial

activities. Under the Constitution, the State is itself envi­

saged as having the right to carry on trade or business as

(ll [1979J 3 sec 489.

(2) [1967] 3 SCR 377 at 385-86.

(3) [1975] 3 SCR 619.

(4) [1979] 3 SCR 489.

G

H

A

B

c

D

E

F

G

H

146 SUPREME COURT REPORTS (1981] 2 S.C.R.

mentioned in Art. 19(1}(g). In Part IV, the State has

been given the same meaning as in Art. 12 and one of

the Directive Principles laid

down in Art. 46 is that the

State

shall promote with special care the educational and economic

interests of the weaker sections of the people. The State,

as defined in Art. 12, is thus comprehended to include

bodies created

for the purpose

<Jf promoting the educational

and economic interests of the people.

The State, as con­

stituted

[Jy our Constitution, is further specifically empower­

ed under Art. 298 to carry on any trade or business. The

circumstance that

the Board under the Electricity Supply

Act

is required to carry on some activities

of the nature of

trade or commerce

does not, therefore, give any indication

that

the Board must be excluded from the scope of the word

"State as used in Art. 12.

The meaning of the learned judge is unmistakable that "the State" in

Art. 12 comprehends bodies created for the purpose of promoting

economic activities.

These bodies may be statutory corporations,

registered societies, government companies or other

like

entities. The

court

was not called upon to consider this latter aspect, but to the

extent to which the holding goes, it supports the stand of the

petitioners.

We are not disposed to discuss more cases because two constitu­

tion benches and

two smaller benches have already pronounced on the

amplitude of

"other authorities" in Art. 12. Even so, a passing

reference

may be made to a few more cases. In

Praga Tools Corpo­

ration

v.

Immanuel(') this court was called upon to consider the

enforceability

of two industrial settlements against the management

which was a company with substantial share-holding for the

Union

Government and the Government of Andhra Pradesh. There was no

spedlic reference to Art. 12 as such although it was mentioned early

in

the judgment that the company was a separate legal entity and

could not be said to be

"either a governnient corporation or an

industry run by or under the authority of the Union Government."

It must be noticed that 12 % shares in the company were held by

private individuals and nothing more is known about the plenary

control

by Government and other features we have referred to earlier

in this judgment.

On the other hand, the short passage, part of which

we have extracted, almost suggests that a government corporation

may stand

on a different footing from

Praga Tools Corporation

(supra). If so, it supports the view we have taken. The Hindustan

(I) [1969] 3 SCR 773.

'

..,.

SOM PRAKASH REKH! v. UNION (Krishna Tyer, J.) 147

Steel case(') which was cited at the bar, considered the question as

to whether

an employee of that company was holding a post under

the

Union or a State so as to claim the protection of Art. 311. This

claim

was negatived, if we may say so, rightly. In the present case,

Art.

12 is in issue and not Art. 311 and, therefore, that citation is an

act of superero'gation. The

Vaish College case(") which too was

referred, related to the status of the managing committee of a college

and the enforceability of the contractual rights

of a teacher by a

writ under Art. 226. That problem

is extraneous to our case and

need not detain

us.

A

B

Imagine the possible result of holding that a government company, C

being just an entity created

under a statute, not by a statute, it is not 'State'. Having regard to the directive in Art. 38 and the amplitude

of the other Articles

in

Part TV Government may appropriately em-

bark upon almost any activity

which in a non-socialist republic may

faR within the private sector. Any person's employment, entertain-

ment, travel, rest and leisure, hospital facility and funeral service

may I}

be controlled by the State. And if all these enterprises are executed

through government companies, bureaus, societies, councils, institutes

and homes, the citizen may forfeit his fundamental freedoms vis-a-vi$

these strange beings which are government in fact but corporate

in form. If only fundamental rights were forbidden access to corpo­

rations, companies, bnreaus, institutes, councils and kindred bodies E

which act as agencies of the Administration, there may be a break-

down of the role

of law and the constitutional order in a large sector

of governmental activity carried on under the guise of 'jural persons'.

It may pave the way for a new tyranny by arbitrary administrators

operated

from behind by Government bnt unaccountable to

Part III

of the Constitution.

We cannot assent to an inter-pretation which F -leads to such a disastrous conclusion unless the language of Art. 12

offers

no other alternative.

It is well known that

"corporations have neither bodies to be

kicked, nor souls to be damned" and Government corporations are

mammoth organisations.

If

Part III of the Constitµtion is halted at G·

the gates of corporations Justice Louis D. Brandeis's observation will

be proved true :

The main objection

to the very large corporation is that

it makes

poss;ble-and in many cases makes inevitablc­

the exercise of industrial

absolutism.

(I) S. L. Agarwal v. General Manager, Hindustan Steel Ltd. [1970] 3 SCR_363.

(2) Vaish College v. Lakshmi Narain [1976] 2 SCR 1006.

1-i8 SUPREME COURT REPORTS (1981] 2 S.C.R.

A It ii dangerou8 to exonerate corporations from the need to have con­

stitutional conscience; and so, that interpretation, language permitting,

which makes governmental agencies, whatever their mein, amenable

to con£titutional limitations must be adopted by the court as against

the alternative of permitting them to flourish as an imperium in im-

B

perio.

The common-sense signification of the expression "other autho­

ritie11 under the control of the Government of India" is plain and

there is no reason to make exclusions on sophisticated grounds such

as that the legal person must be a statutory corpo~ation, must have

power to make laws, must

be created by and no! under a statute C and so on. The jurisprudence of Third World countries cannot afford

the luxury against which Salmond cavilled (') :

D

E

Partly through the methods of its historical development,

and partly through the influence of that love of subtlety

which has always been the besetting sin of the legal mind

onr law

is filled with needless distinctions, which add enor­

mously to its bulk and nothing to its

value, while they

render a great part of it unintelligible to any but the expert.

Having concluded the discussion on the amenability of the res­

pondent-company to Part III we proceed to consider the merits of

the ca£e on the footing that a writ will issue to correct the illegality

if there be violation of Arts. 14 and 19 in the order deducting from

the pension of the petitioner two sums of money mentioned

right at

the beginning.

We may now proceed to consider the substantial questions raised

by the petitioner to invalidate the deductions from his original pension

}' on the ground of his drawal of provident fund and gratuity. The

justification for such deduction

is claimed to be regulation 16 and its

antidote is urged to be a provision in the two respective enactments relating to provident fund and payment of gratuity, namely, ss. 12 and

14.

,ff

The petitioner retired voluntarily under an extant voluntary retire­

ment scheme. The quantum of pension

was regulaJed by that scheme.

The petitioner

was also a member of the statutory scheme framed

within the scope of the Employees Provident Fund and Miscellaneous

Provisions Act, 1952 and was entitled to Provident Fund payment

on retirement. Likewise, he

was entitled to payment under the

Gratuity Act, 1972. These

vrere the statutory rights which he en­

joyed. Being a non-contributory member of the Pension Fund of

(I) Salmond, Jurisprudence, 10th Edn. p. 51.

..

SOM PRAKASH REKHI v. UNION (Krishna !ya, J.} U9

Burmah Shell under the Trust Deed set up by it, he earned his pension.

But the Trust Deed contained many regulations. The normal annual

pension under the regulations worked out

to a sum of Rs. 165.99 per

month for the petitioner. Regulation 16 provided

fqr certain "autho­

rl$ed deductions" from the amount or pension of non-contributing

members. The quantification of these deductions

was provided for

in the said regulation. If these deductions were not to be made, the petitioner would be eligible for his pension of Rs. 165.99 and Rs. 86

per month by way of Supplementary Retirement Benefits which, he

awerted was a part of the pensionary benefits. This was being paid

by the Burmah Shell to its employees and naturally this obligation

devolved on the successor second respondent under the statutory

rules framed in this behalf [Burmah Shell (Acquisition or Under­

takings of India) (Administration of Fund) Rules, 1976]. But, by

lotter dated August 10, 1973, the petitioner was informed that a sum

of Rs. 56.12 would be deducted

as an 'authorised deduction' pursuant

to reg. 16 mentioned above. The cause

for this was the drawal of

the provident fund amount. Likewise, when the gratuity was drawn

by the petitioner, another letter dated October 24, 1973 was issued

to

him that there would be a further reduction of

th\: pension. When

the petitioner complained to the appropriate authority that Burmah

Shell was declining to pay the gratuity, a direction was issued to the

management to pay the sum of gratuity due. Thereupon, a turther

deduction

of Rs. 68.81 from the monthly pension of the petitioner was effected as an 'authorised deduction' under reg. 16(3). The

diicretionary payment by way of retirement benefits, namely,

R$. 86/-per month was also stopped, maybe because the petitioner

litigatively withdrew gratuity and provident fund. The pitiable posi­

t.ion was that the petitioner found himself with a miserable amount

of Rs. 40.06 per month, a consequence directly attributable to his

r~ving provident fund and gratuity amounts. Of course, legality

cannot be tested on the size of the sum and the court must examine

the merits de hors any sympathy .

The petitioner's attempt to recover his full pension under s. 33C(2)

of the Industrial Disputes Act failed since that jurisdiction was more

than that of an executing court and there should be a substantive

order creating the obligation before enforcement could follow.

The liability for the payment of full pension

was that of Burmah

Shell, but, by virtue of

ss. 3 and 4 of the Act, all the assets and

liabilities vested in the Central Government and thereafter, in the

second respondent.

Section 10 of the Act relates to provident fund,

. -~,.... t ,,,.,

A

B

c

D

F

G

H

15 0 SUPREME COURT REPORTS (1981] 2 S.C.R.

A superannuation, welfare fund and the like. Section 10(3) is.

important :

B

c

10(3). The Government company in which the under-

taking of Burmah Shell in India are directed to be vested

shall, as soon

as may be after the date of vesting, constitute.

in respect of the moneys and other assets which are trans­

ferred to, and vested

in, it under this section, one or more

trusts having objects

as similar to the objects of the existing

trusts as in the circumstances may be practicable,

so, how­

ever, that the rights and interests

of the beneficiaries of the

·trust referred to in sub-section (1) are not, in any way,

prejudiced or diminished.

(emphasis

added)·

Follow-up steps were accordingly taken and there is no quarrel over

it.

It is clear, therefore, that

the second respondent has made pro-

D vision for the rights and interests of the beneficiaries of the Trust

established by Bunnah Shell for the benefit of the persons employed

by it. Section 10(1) puts this matter beyond doubt. This obliga­

tion of the second respondent

is a statutory one and having

regard·

to the provisions of s. 11, it cannot be affected by any instrument or

decree or order. The statutory continuation of a pre-existing liability

E to pay pension, provident fund or gratuity, cannot

be avoided having

regard to

s.

10.

Shri Pai contends that the very root of the claim to pension is the

Trust Deed which

is to be read integrally. Regulation 16 is part and

parcel of the right to pension and cannot

·be divorced from reg. 13.

F Indeed, these regulations arc

so intertwined that the

"authorised de­

ductions" are an inextricable part of the right to pension. If this j

approach be correct and if there be no other legal prohibition in

making the deductions, the conclusion is convincing that the quantum

of pension must sustain the authorised deduction immediately provi-

dent fund and gratuity are drawn. The counter argument of Shri

G Parekh

is that there is a statutory prohibition against any deduction

from the pension

if the ground is drawal of provident fund or

gratuity

amount. In view of the statutory taboo he contends, that the deduc­

tion is unauthorised even if the contract or trust may provide so. So,

the crucial question is whether there is. a statutory ban on any diminu­

tion in the pension because of provident fund and gratuity benefits

H having been availed of. The

PF Act and the Gratuity Act contain

certain protective provisions whose true import falls for

construction·

and is decisive of the point in dispute.

...

..

SOM PRAKASH REKHI v. UNION (Krishna Iyer, ]. ) ' 151

Let us assume for a moment that reg, 16 authorises deductions

and that discretionary payments, although enjoyed by the employees,

is fotble to be stopped. The question is whether s. 12 of the PF Act

forbids

any such reduction or deduction out of the benefits in the

nature of

old age pension on the score of the payment of contribution

to the provident fund. We may extract s. 12 here for, according to

Shri Parekh, the language speaks for itself :

12. No employer in relation to an establishment to

which any scheme or the insurance scheme applies shall,

by reason only of his liability for the payment of any contri­

bution

to the Fund or the Insurance Fund or any charges

under this Act or the

scheme, reduce, whether directly or

indirectly,

the wages of any employee to whom the scheme

of the Insurance Scheme applies or the

total quantum

<Yf

benefits in the nature of old age pension, gratuity, provident

fund

or Life Insurance to which the

employee is entitled

under the terms of his employment,

express or implied.

(emphasis addcdi;

We take the view that this be;iignant provision must receive a benig­

nant construction and, even if two interpretations are permissible,

that

which furthers the beneficial object should be preferred. From

that perspective, the inference

is reasonable that the total quantum

of benefits in the nature of old age

ponsion, gratuity or provident

fund, shall not be reduced by reason only of the liability of the

employer

for payment of contribution to the fund. The Section

prevails

over the Trust Deed. The provident fund accrues by statu-

tory force and s. 12 override; any agreement authorising deductions,

argues

Shri

Parekh. '

A similar result holds good

even under the Gratuity Act.

Section

14 of that Act reads thus :

14. The provisions of this Act or any rule made there­

under shall have effect notwithstanding anything inconsistent

therewith contained in any enactment other than this Act

or

in any instrument or contract having effect by virtue of

any enactment other than this Act.

A

B

c

D

E

F

G

The expression

"instrument" certainly covers a Trust Deed and,

notwithstanding the deduction that may be sanctioned

by the Trust

Deed,

the overriding effect of s. 14 preserves the pension and im-j

inunises it against any deduction attributable to the statutory payment H

of the provident fund. The deduction made by the second respon-

dent is, i'n that event, illegal.

A

B

c

D

F

G

152 SUPREME COURT REPORTS [1981] 2 S.C.R.

Shri Pai argues that no reduction of retiral benefit is ef!ected

because the entitlement to pension under reg.

13 is itself conditioned

by the clause for deduction and

has no separate amplitude del hors

the 'authorised deduction' spelt out in reg. 16 Let us examine theBC

rival contentiom. If reg. 16 is a provision which imposes a cut in

certain eventualities it is possible to

ho1d that the employee has a

certain pensionary

right. But if he draws P.F. or gratuity that pen­

sion will be pared down by a separate rule of deduction from the

pension.

It follows that there is no straining of the language of the

regulations

to mean, firstly, a right to pension quantified in certain

manner and, secondly, a right

in the Management to make deduction

from out of that pension

if other retiral benefits are drawn by the

employee. That appears to be the pension scheme.

If this be correct,

there is no substance in the argume'nt that the pension itself is

auto­

matically reduced into a smaller scale of pension on the drawal of

provident fund or gratuity. Pension

is one thing, deduction is

another. The latter is independent of pensio'n and

operates on tht

pension to amputate it, as it were. If a law forbids such cut or

amputation the pension remains intact.

The public policy behind the provisions of ss. 10. 12 and 14 of

the respective statutes is clear.

We live in a welfare

State, in a

'socialist' republic, under a Constitutio'n with profound concern for

the weaker clasres including workers (Part IV) welfare benefits such

as pensions, payment of provident fund and gratuity are in fulfilment

of the Directive Principles. The payment of gratuity or providdlt

fund should not occasion any deduction frdm the pension as a "se~

oft". Otherwise, the solemn statutory provisions ensuring provide11t

fund and gratuity become illusory. Pensions are paid out of regard

for past meritorious services. The root of gratuity and the founda­

tion of provident fund are different. Each one is a salutary be'nefae­

tion statutorily guaranteed independently of the other. Evell

assuming that by private treaty partie~ had ot~rwise agreed lo

deductions before the coming into force of these beneficial enact­

ments they cannot now be deprivatory. It is precisely to guard

against such mischief that the non-ob•tante and overriding µrovisiot\s

are engrafted on these ~tatutes.

We must realise that the pension scheme came into existence prior

to the two beneficial statute11 and Parliament when enacting the~e

Je~slations must have clearly intended extra benefits being conferred

H

o'n

employees. Such a conrequence will follow only if over and above

the normal pension, the benefits of provident fund and gratuity are

enjoyed. On the othe.r hand, it consequent on the receipt of

o-:~~-~· _,_

..

•

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•

•

SOM PRAKASH REKHI v. UNION (Krishna Iyer,/.) 153

these benefits there is a proportionate reduction in the pension, there

is 'no real benefit to the employee because the Management takes

away by

the left hand what it

seems to confer by the right, maJcin&

the legislation itself left-handed. To hold that on receipt of gratuity

3nd provident fUnd the pension of the employe_e may be reduced

pro tanto is to frustrate the supplementary character of the benefits.

Indeed, that is why by ss. 12 and 14 overriding effect is imparted

and reduction in the retiral benefits on account of provident fund

and gratuity derived by the employee

is frowned upon.

We,

accordingly, hold that it is not open to the second respondent to

deduct from the full pension any sum based upon reg.

16 read with

reg. 13.

If reg. 16 which now has acquired statutory flavour, havin&

been adapted and continued by statutory rules, operates

contrary to

the provisions of the P .F. Act and the Gratuity Act, it must fail

as invalid. We uphold the contention of the petitioner.

The only point that survives turns on the stoppage of the dis­

cretionary supplementary pensionary benefit. What

is discretionary

depends on the discretion of the employer. But that power when

exercised by an agency of government

like the second respondent,

must

be based upon good faith and due care. If as a measure of

reprisal or provoked by the drawal of gratuity, or by resort to legal

authorities, such supplementary benefit

is struck off, it will

cease to be

bona fide or valid. We have no material to hold that the second

respondent

has independently considered this matter and so we

direct that if the petitioner moves the

second respondent

stating his case for the continuance of the supplementary benefit, it

will be considered on it~ merits uninlluences by extraneous factors.

We do not think it right or necessary to issue any further direction.

We hold that the petitioner is entitled to his full pension. of Re.

165.99. We further hold that, on appropriate representation by him,

the second respondent shall consider the grant or stoppage of the

supplementary pensionary benefit on its merits. The petition is allowed

with costs which we quantify at Rs. 2,000/-Shri Parekh representa

that this sum may

be directed to be paid to the Legal Aid Society

in the Supreme Court. We appreciate this

gesture of counsel and

direct the Registry to act accordingly .

Social justice is the conscience of our Constitution, the State is

the promoter of economic justice, the founding faith which sustains the

Constitution and the country is I'ndian humanity. The public sector

A.

B

c

D

E

F

G

is a model employer with a social conscience not an artificial person H

without soul

to be damned or body to be burnt. The stance that, by

deductions and

discretionary withholdini of payment, a public 1ector

A

B

c

154 SUPRElE COURT REPORTS [1981] 2 S.C.R.

company may reduce an old man's pension to Rs. 40/-from Rs.

250/-is unjust, even if it be assumed to be legal. Law and justice

must be on talking terms and what matters under our constitutional

scheme

is not merciless law but humane legality. The true strength

and stability of our polity

is society's credibility in social justice, not

perfect legalise; and

this case does disclo'se indifference to this funda­

meulal

vaJue. We are aware that, Shri G. B. Pai, for the Management,

did urge that 'principle'

was involved and that settlements had been

reached between Labour and Management on many

issues. We do

appreciate the successful exercises of the Management in reaching

just

settlements with its employees but wonder whether the highest principle

of our constitutional culture

is not empathy with every little individual.

PATHAK, J.--I must confess to some hesitation in accepting

·~~

proposition that the Bharat Petroleum Corporation Limited is a

"Srnte" within the meaning of Art. 12 of the Constitution. But in

view of the direction taken by the law in this Court since Ramana

Dayaram Shelly v. l11ter11atio11al Airport Authority(') I find I must

D lean in favour of that co'nclusion. I would have welcomed a wider

range

of debate before us on the fundamental principles involved in

the

issue and on the implications flowing from the definition

;" '.he

Companies Act, 1956 of a "Government Company", but perhaps a

future case may provide that.

E As regards the Bunnah Shell (Acquisition of Undertakin~ in

India)

Act, 1976 I am unable to see any

support for the proposition

in the provisions

of that Act. The provisions will apply to any

Government

('ompany, and they do not alter the basic nature of that

company. They are provisions which could

well have been applied

to a private corporation, if the Act had selected

one for

vesting the

F undertaking in it. Would that have made the private corporation a

"Statei' ?

On the merits of the petitioner's claim I need say no more than

t;tiat l agree with my learned brothers that the petitioner should be

granted the relief proposed

by them.

G

l'.B.R. Petition <11lowcd.

(I) fl979] 3 S.C.R. 489.

•

'

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•